Order types
How you ask to buy is a decision in itself. Getting this wrong is the most avoidable loss available to a beginner.
When you place a trade you are not just choosing what to buy. You are choosing how to ask, and the choices behave very differently.
Market order — “buy it now, whatever it costs”
Executes immediately at the best price currently available. You are guaranteed to trade; you are not guaranteed a price.
The quote you see is for whatever quantity sits at the front of the queue. If your order is larger than that, the rest fills at progressively worse prices. In a fast-moving or thinly traded market the gap can be substantial.
Limit order — “buy it, but not above this price”
You set the worst price you will accept. You are guaranteed the price or better; you are not guaranteed to trade at all.
For anything other than the most heavily traded instruments, this is usually the sensible default. Missing a trade costs you nothing you had. A bad fill costs real money.
Stop order — “if it falls to here, get me out”
Dormant until the price reaches your trigger, at which point it becomes a market order. Which means it inherits every weakness of a market order, at the exact moment those weaknesses are worst.
That is their purpose, and it is also the objection. A sharp temporary dip can trigger a stop and sell you out at the low, after which the price recovers without you. The order did exactly what you asked; what you asked is the question.
Practical rules
- Use limit orders unless speed genuinely matters more than price.
- Never place a market order before the open or after the close — the queues are thin and the prices are not real yet.
- If you use a stop, understand that it is a market order in waiting.
- Check the bid-ask spread before trading anything unfamiliar. See liquidity.